What's Next for the Markets? Here's What the Charts and Data Say

Psychology indicators remain bullish.

While psychology data continues to send a positive message, the McClellan one-day oscillators have been pushed well into overbought territory, suggesting some pause/retracement (already being exhibited Friday) of the recent rally.

On the Charts

All the major equity indices closed higher Thursday with positive internals on the NYSE and Nasdaq as trading volumes declined from the prior session.

Further technical improvement was seen on the charts as all the indices, with the exceptions of the Dow Jones Transports (see below) and Value Line Arithmetic Index, which closed above their near-term resistance levels, while the Nasdaq Composite, Nasdaq 100, and Value Line closed above their near-term downtrend lines for the first time within the recent market rout.

As such, only the S&P 500, DJIA and S&P MidCap 400 remain in downtrends as the rest are now neutral.

Source: Worden

The cumulative advance/decline lines for the All Exchange, NYSE and Nasdaq turned positive as well.

New support/resistance levels for each of the indexes are:

S&P 500: 2,449/2,633

DJIA: 20,489/23,144

Nasdaq Composite: 7,163/7,863

Nasdaq 100: 7,289/7,917

Dow Transports: 7,324/8,132

MidCap 400: 1,333/1,500

Russell 2000: NA/1,207

Value Line: 4,273/4,736

Data

While the data continues to send some strong bullish signals., the McClellan one-day McClellan Overbought/Oversold Oscillators are now overbought with the NYSE's extremely so (All Exchange: +99.53 NYSE:+104.33 Nasdaq:+97.82). These overbought conditions suggest some consolidation/retracement of the recent gains.

The Open Insider Buy/Sell Ratio (see below), at 201.0, continues to find insiders aggressively buying their own stock.

In contrast, the detrended Rydex Ratio (contrary indicator), at -2.62, continues to show the ETF traders extreme leveraged short exposure.

Valuation

The S&P 500 is trading at a P/E multiple of 16.3x consensus forward 12-month earnings estimates from Bloomberg of $161.79 per share, versus the "rule of 20" fair value multiple of 19.2x, indicating the index remains undervalued.

The S&P's forward earnings yield is 6.15%, while the 10-year Treasury yield is at 0.81%.

Our Outlook

We are keeping our near term "neutral/positive" outlook in place with the caveat that current heavily overbought conditions may well result in some retracement of recent gains, as seen in Friday's action, before resuming their progress.

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At the time of publication, Ortmann had no positions in any securities mentioned.

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